IGI Securities, which works on behalf of the World Bank and is stationed in the ministry of water and power, presented a 10-year vision for the power sector, claiming to generate 20,000 megawatts (MW) of electricity with an investment of $32 billion (Rs2.8 trillion), equivalent to the current year’s federal budget.
The vision was presented in a two-day workshop on energy sector reforms, financed by international financial institutions. Minister for Water and Power, Raja Pervez Ashraf, announced the acceptance of all recommendations of the workshop since, according to him, “we do not have other options.”
“The government is now very serious about reforming the power sector and for that electricity thieves will be captured and prices will also be increased, if and when required,” Ashraf added.
Under the umbrella of the International Monetary Fund (IMF) and the World Bank (WB), the government has embarked on a drive to liberalise the state-dominated power sector. In the first step, it dissolved Pepco, the management company of power distribution companies, which according to Ashraf, was losing Rs250 billion annually.
In the next phase, the government will completely pass on the electricity generation cost to the end-consumers, enhance generation capacity, improve efficiency of power distribution companies and recover electricity bills even from those who are unwilling to pay.
The continuous increase in the cost of electricity generation is also because of the fact that the government has started relying heavily on furnace oil by moving away from the cheaper hydroelectric and natural gas resources. Pakistan is only generating 5,700MW of hydroelectricity whilst it has the potential to generate 56,700MW.
“Pakistan’s main problem is its energy mix but the dilemma is that the country does not have the natural gas to change the shift,” said Ashraf.
According to an official of the ministry of finance, the government has to increase the tariff this year by 15 per cent in order to recover the full cost of generation. The government has also announced certain administrative measures that include improving efficiency. Without these administrative measures, the increase would range between 30-34 per cent. The government increased tariffs by 2 per cent, representing a total 70 per cent increase over two years.
“There is nothing new about it. All these actions have been claimed by successive governments in the past,” said Imtiaz Ali Qazalbash, an engineer and a founding member of Water and Power Development Authority (Wapda). “I still doubt the government can achieve what it claims since it has a history of backtracking on promises such as bringing an end to power outages by December 31, 2009.”
Ashraf said that over the years the government did not adjust the power tariffs which resulted in Rs400 billion in losses to the power sector. He said that the presence of circular debt has culminated into a big hole that has jeopardised the whole economy.
“It is time to take care of the deteriorating power sector, as the economy cannot afford Rs250 billion in annual losses anymore,” he added.
He also said that there was a need to enhance the efficiency of the power sector. He said that in order to reduce line losses the government will divide the jurisdiction of power distribution companies and in the first instance, the Sukkur Electricity Supply Company would be carved out of the Hyderabad Electricity Supply Company.
Ashraf said that 150,000 Wapda employees are under protection and should not feel any threat from the reforms process. To a question regarding the withdrawal of free electricity facility for Wapda employees, Ashraf said that the government was considering monetising it.
IGI Securities said that during the last eight years foreign investment in private sector was almost non-existent. Of the total investment, only four per cent came to the power sector due to official barricades.
The vision is to generate 20,000MW electricity at a cost of $32 billion (Rs2.8 trillion) by 2020, according to IGI Securities. The amount comes to $3.2 billion per annum. However, there is an underlying risk that Pakistan may not spare such a significant amount in the wake of an average of $6 billion in loan repayments during the first half of the next decade.
From the total amount, $17 billion will be provided by the government and the remaining portion will be attracted through private investment. The vision foresees generating 4,929MW of hydroelectricity at an estimated cost of $8.3 billion. Around 3,500MW of electricity with an estimated cost of $6.5 billion will be generated using indigenous coal.
There is a need to change the fuel mix and improve the deteriorating balance sheet of the power sector. “That can only be done through raising tariff,” said a representative of IGI Securities.
She said that commercial banks gave Rs500 billion in loans to the power sector last year that included project financing, fixed investment and working capital. The amount is 13 per cent of the banking sector’s balance sheet. “Poor credit worthiness of the power sector is a bottleneck to foreign investment in the energy sector,” she added.
“The 2002 power sector policy did not produce results and a lot has to be done on tariff reforms and changing tariff structure,” she emphasised.
The deputy chairman of the Planning Commission also added that the government will also install smart meters to stop pilferages and collect the cost of electricity.
Published in The Express Tribune, October 5th, 2010.
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